In Depth

The Indiana Supreme Court has reaffirmed the state’s reliance on the uniform-contract interpretation approach rather
than a site-specific approach for deciding which of several states’ laws should apply to an environmental remediation
insurance coverage case.

The justices determined that Indiana law doesn’t apply here. The Supreme Court ruled that Maryland law applies and
should decide the outcome of a case that “typifies frequently recurring disputes over insurers’ obligations to
defend and indemnify their insureds in the face of demands to clean up or pay for environmental contamination at multiple
sites in multiple states.”

A manufacturer of emergency signaling flares, SFC is incorporated in Delaware and headquartered in Maryland, and since the
late 1980s has owned various sites in multiple states. The company purchased comprehensive general liability insurance policies,
and in 2005 it filed a suit against its insurers seeking a declaratory judgment that insurers were require to defend and indemnify
SFC under the policies for environmental liabilities arising in Indiana and California.

The trial court applied Indiana substantive law to interpret the insurance policies, instead of Maryland law, and the insurance
premiums were paid. Late last year, the Indiana Court of Appeals issued a 30-page decision that for the first time adopted
a site-specific approach in deciding which state law should apply, rather than the uniform-contract interpretation approach
that has long been recognized in Indiana. Following the uniform-contract interpretation approach would be contrary to the
general principles of the Restatement (Second) of Conflict of Laws (1971), the appellate court held, and the respective states’
laws should apply because Indiana and California respectively have the most significant relationship with the contamination
issues.

But looking to a long history of caselaw and adopted practice here, the Indiana justices overturned their intermediate appellate
colleagues’ rationale from a year ago.

“After reviewing our doctrine’s history, we conclude that the uniform approach is more consistent with Indiana’s
choice-of-law jurisprudence, and as such should apply in cases involving multisite, mulistate insurance policies,” Justice
Frank Sullivan wrote.

Justice Sullivan cited the development of Indiana’s choice-of-law rules in the 65 years since the landmark decision
of W. H. Barber Co. V. Hughes, 223 Ind. 570, 63 N.E.2d 417 (1945), in which the state court held a contract is governed
by the law of the state where it is made, and that a contract is deemed made in the state where the last act necessary to
make it a binding agreement occurs. With that ruling, Indiana became one of the first to suggest the use of what has become
known as “the most significant relationship” approach in determining what law to apply in contract disputes.

“We see no reason why pollution sites in multiple states should be treated any differently than other contracts,”
Justice Sullivan wrote, rejecting the rationale the Court of Appeals had used to justify its favor of the site-specific approach.

The justices also pointed to their ruling in Simon v. United States, 805 N.E. 2d 798, 801 (Ind. 2004), in which
they clearly rejected the use of “the process of analyzing different issues within the same case separately under the
laws of different states.”

“To be sure, our concern in contracts cases has been determining the state in most intimate contact with the facts,”
the court wrote. “A single event – like executing a contract – has not been determinative if that event
occurred in a state with insignificant contacts. Similarly, where environmental contamination plagues multiple sites in multiple
states, the site of the pollution should not control if it is not located in the state with the most intimate contacts.”

Both parties disagreed about whether Indiana or Maryland law should apply, and the justices came to a different conclusion
than the trial court about the place of performance pointing to Indiana. The SFC headquarters is located in Maryland, which
indicates it’s the principle location of the insured risk. Some dispute may still remain about the location of insured
risk, but the justices determined that the place of performance is not exclusively Indiana and so the “overall number
and quality of contacts” favor Maryland over Indiana.

The reversal sends the case back to the trial level for the application of Maryland law to the entire dispute.

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